In an imaginary economy,consumers buy only sandwiches and magazines.The fixed basket consists of 20 sandwiches and 30 magazines.In 2006,a sandwich cost $4 and a magazine cost $2.In 2007,a sandwich cost $5.The base year is 2006.If the consumer price index in 2007 was 125,then how much did a magazine cost in 2007?

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Quizplus · Accepted Answer

To find the cost of a magazine in 2007, we first calculate the cost of the basket in the base year (2006): (20 sandwiches * $4) + (30 magazines * $2) = $80 + $60 = $140. The CPI in 2007 is 125, which means the cost of the basket in 2007 is 125% of the base year cost: 1.25 * $140 = $175. In 2007, the cost of 20 sandwiches is 20 * $5 = $100. Therefore, the cost of 30 magazines in 2007 is $175 - $100 = $75. The cost of one magazine is $75 / 30 = $2.50.

In an Imaginary Economy,consumers Buy Only Sandwiches and Magazines